Is E-Commerce Profitable Commerce? With Robert Gold

by AccountingWeb on Nov 14 2000printer friendly

Presented by Robert Gold, MBA, CA

Session Moderator: Welcome, and thank you all for joining us!

Today we welcome Robert Gold to the workshop room. Robert has been in public practice in Toronto for over twenty years. His background is with KPMG. He is the Managing Partner of Bennett Gold, Chartered Accountants - a full service Chartered Accountant firm located in Toronto, Canada employing a staff of twenty professionals.

Today, Robert is the Feature E-Commerce Writer at RoyalBank.com[1] and Quicken.ca[2]. He is also a Contributing Editor for CPA Technology & Internet Advisor. As the managing partner of the world's leading WebTrust certification firm, Robert has been face-to-face with Canada's business and political leaders. He presented evidence to the Canadian Government as they drafted Canada's new Online Privacy Legislation. Today, Robert is going to share with us his ideas about the profitability of e-commerce. Thank you for joining us, Robert!

Robert Gold: Thank you for inviting me.

Session Moderator: It's our pleasure!

Robert Gold: I'm looking forward to sharing some insights and editorial comments with you. Are you all ready?

First of all, can I ask you how many clients you each have that are involved in ecommerce?

Shawn Strickler: 20

Thomas Greve: I am in the publishing business. I would have to say most of them.

Robert Gold: Then I think you will find value here, and be able to share some intelligence with them.

Do your clients have Amazon.com-envy?

Amazon has maintained pioneer status in the electronic medium where an idea one day is often a product offering the next - and possibly dotcom dead the next. After just a few short years, Amazon is one of the world's most recognized brand names rivaling Coke, Ford and IBM. And Amazon's revenues have been growing exponentially since the first day it was launched. But, despite these desirable traits, Amazon.com remains unprofitable.

As an advisor to small-to-medium-sized business, you may think, "If Amazon can't make money on the Internet, how can my clients?" Today we will explore e-commerce profitability and suggest ways that businesses can use the Internet to be profitable.

Ready?

The Balance for Achieving Profitability

Achieving profitability means finding a positive balance between revenues and costs, during a particular period of time. Every business journal devotes space to the vast revenue potential of e-commerce. The argument for revenues is certainly not unfamiliar to "bricks and mortar" businesses:

Take a market segment, add a product offering, provide access and methods for payment, and the result is revenue.

Sounds simple, doesn't it?

In the world of the Internet, the argument goes something like this:

More people are jumping on the Internet everyday. Both web-sophisticates and newbies are intoxicated by the medium's speed and flash. Customers have access to an assortment of payment methods with which they do what consumers do best…consume!

Profitable Internet Businesses?? Don't Be Discouraged!!

Generating revenues alone does not guarantee profitability. If it did, businesses like Amazon would be enormously profitable. Still, there are a few types of e-businesses that generate enough revenue to be profitable:

Pornography

Pornography continues to be the hotbed for e-commerce. This sector's success stems from consistently combining titillating product with the Internet's latest multi-media and marketing technologies. And wasn't it the sex industry that gave home video systems much needed momentum?

Financial Services

Financial services have achieved profitability because the Internet offers rapid and immediate access to information that can instantly shape investment decisions. Service fees are often discounted for online transactions.

Online Gambling

Although generally illegal in the United States, this sector has remained successful because governments have been able to resolve the complexity involved in the design, monitoring and enforcement of taxation and other laws related to Internet gambling.

So.....Does this mean that if your clients are not operating porn, e-trading or gambling sites that their forays into e-commerce will be unprofitable? No! It means you need to re-examine your clients’ core business to address the remaining two components of profitability: Cost and Time.

How the Internet Can Help Your (And Your Clients’) Business be Profitable?

In order to determine the “how” in that question, we will examine some of the major areas of all businesses and review some of the ways the Internet can contribute to profitability without focusing on building revenues. Each business’ potential for using the Internet effectively will depend on a number of factors. One core issue is the thought and planning behind using the Internet, i.e. “to web or not to web”.

The basis for transactions is "Internet time," that is the time it takes to initiate or complete a business transaction. However, most businesses still operate on "bricks and mortar time"; that is, businesses still think in terms of traditional business cycles. Because of the immediacy of Internet transactions, businesses either come to expect immediate profitability or, ironically, lose track of the linkage between research and development and the final sale. In either case, you must advise your clients against setting profitability targets for a time period that is inappropriate.

Administration

Payment and billing methods abound. Various options allow consumers, vendors, banks and intermediaries to facilitate secure and immediate business-to-consumer and business-to-business transactions. Shortened order and delivery cycles can be achieved through order management, fulfillment and procurement software that allow businesses to considerably reduce the amount of paper, fax, and data-entry transactions.

Customer Service

The Internet can be a cost-effective method for tracking customer service. Easy monitoring allows businesses to solicit and collect a multitude of customer comments and concerns. (However, don't ignore the “privacy hurdle” that faces online businesses. For current info about that subject, please read this article: http://www.E-CommerceALERT.com/article142.html[3]). In turn, customers can be contacted before systemic problems worsen. If tied into product development and marketing, rapid customer service through the Internet can be a powerful tool for lead generation.

Marketing

The Internet is a thoughtful marketer's dream. It can be used to gather profile information on industries, as well as on potential and existing clients. And, communications offered through web sites can reduce, or replace, hardcopy materials distributed through trade shows or direct mail campaigns. Some intelligently based email marketing campaigns have significantly outperformed their real world, direct mail counterparts.

Are any of you familiar with the National Geographic campaign? They included a simple animation of a herd of giraffe running across the email page. The response rate was stupendous.

Core Operations

Some businesses have core processes that can take greater advantage of the Internet. Nonetheless, it is likely that most businesses can use the Internet to build stronger linkages with certain suppliers and key clients that would result in process efficiencies and cost reductions. It's as if EDI (electronic data interchange) of the big-business past has come to the desktop. Many large purchasers will insist their small business suppliers use a web-based ordering and supply system exclusively. It's already happening in Canada at the Hudson's Bay Company - one of Canada's largest retailers.

Financing

How do your clients seek financing these days? Do they go crawling, hat in hand to their local bank? That's all about to change. Check out this newcomer for a look at how PrimeStreet[4] (as they say) is “changing the way small business gets financed”. PrimeStreet is a bidding process for small business loans. A number of lending institutions have gathered together under this Royal Bank of Canada initiative. It first launched in the U.S. but now has coverage across North America.

Another group to make an appearance in Canada, and soon to launch in Dallas (and other U.S. cities) is Future-One Inc. They run web sites VentureToronto.com[5] and VentureAlberta.com[6], and act as an online local matching service for investors and entrepreneurs. Does that sound like something your clients might be interested in? How about local investors?

Human Resources

In today's fast-paced business world, your clients are constantly under the gun to hire the right mix of employees. Where should they go for efficiency and intelligent matching?

Curt Thomas: A traditional consumer can look at an office or building and make a judgment about the size of the company or the "quality" of the company. Today, no one knows whether they are dealing with an Amazon or Joe's garage. How do you address this in terms of competition and in terms of establishing a presence for yourself?

Robert Gold: Internet technologies provide an opportunity for you to create new ways to add value to your relationship with your clients. The only way to learn what opportunities exist for your clients to become e-commerce profitable is to surf, surf and surf! Use a good search engine, seek out the business sites that will add value (or intelligence) to your client's businesses. And then blow your own horn with a new value-proposition for your clients.

The Internet provides thousands of sites that allow the selection of candidates that may or may not be within a very limited geographical area. Other human resources functions such as benefits administration and payroll have become more efficient through software applications that use the Internet as a cost-effective method to share information with suppliers (i.e. Insurance carriers). If your clients are not employing any of these tools, they are probably focusing their resources on building revenues alone, instead of balancing revenues, costs and time.

Robert Gold: Any questions?

JJ Anderson: I saw the customer service line on your website. How have your clients reacted to that?

Robert Gold: JJ - It is not used all that frequently - however, it does serve to "humanize" the site.

JJ Anderson: How do you get people over that first hurdle of purchasing something - anything – on-line?

Robert Gold: JJ - individuals have to get over the trust and privacy hurdle, that's for sure.

It there are not further comments right now, I want to enter into the "Bonus Round"

It is up to an online company or business to encourage the customers to trust the site. As you know, I am a great proponent of WebTrust[7]. We ask all our clients to promote WebTrust in their online and offline advertising. That promotes the trust message very solidly.

JJ Anderson: I've had clients for years who trust me but are skittish about buying anything from a web service.

Robert Gold: JJ - it's all about using Privacy as a marketing initiative.

OK - a few comments in the Hit and Myth Department:

Hit: Businesses must strive to better understand and serve the needs of the individual customer.

Internet and e-commerce applications allow each individual to specify their needs to businesses. However, for most businesses, trying to accommodate each customer without understanding segmentation of larger groups means being lost in a pool of discrete and often conflicting customer data. While businesses may need to focus on understanding smaller groups of customers, they still need to aggregate information to understand current and upcoming trends.

Hit: The business models underlying today's e-commerce are different from those of the last 10 to 50 years.

Myth: E-commerce businesses have nothing to learn from the industrial revolution.

While human beings are the greatest living adapters, we are reluctant to change. Whatever business function or position you hold or whatever market you operate in, you've seen evidence of people unable or unwilling to change radically or drastically. As a result, our current economy is a hybrid between the industrial age and the information age. This means that people are far more likely to tweak familiar business models than discard them completely. Scratch an e-commerce model, and you'll find industrial business foundations.

Hit: Competition drives the development of e-commerce innovation

Myth: For your firm to succeed, your competitors must fail.

One of the side effects of the growth of e-commerce is the increasing number of business alliances involving suppliers, clients, and competitors. As businesses evolve quickly to fill demands they will be addressing challenges that can affect entire industries. E-commerce initiatives can be the impetus to bring together traditional competitors to form strong industry partners who together shape the future of their businesses.

Myth: Technology will create a cure-all to address e-customers? security and privacy concerns.

Study after study points to security and privacy as the prevailing issues hindering or halting e-businesses from realizing their profitability potential. The most common, and ironically the most easily addressed, are the procedures that e-businesses can adopt and monitor to ensure the necessary precautions. E-businesses can adopt and monitor to ensure the necessary precautions. Businesses that wait for a security and privacy silver bullet run the real risk of losing on-line credibility and being clicked over.

Curt Thomas: Are there any good resources out there on evaluating alliances?

Robert Gold: Curt: What alliance would you like to evaluate?

Curt Thomas: Dealing with other service providers who want to have access to my clients through my site.

Robert Gold: Curt - I would be very careful about sharing your client list with various service providers.

Curt Thomas: They're looking at me as a reseller - lots of companies out there!

Robert Gold: You may want to strategically align yourself with groups you trust, and introduce the alliance partner to your clients as part of your team. However, how many groups can you possibly partner with? I tend not to align myself with any outsiders.

Hit: Businesses need to take full advantage of e-commerce technologies and opportunities to succeed.

Myth: All businesses are equally suited to transforming their bricks and mortar business to online e-commerce business.

Customers, suppliers, business partners and investors alike are looking for opportunities to transform well-known and not-so-well-known businesses to on-line businesses. These changing expectations are founded on the belief that on-line businesses are somehow less expensive and more profitable than their bricks and mortar counterparts. Lessons from across industries reveal that not all businesses can equally take advantage of the new technologies. Businesses that will succeed will gain leverage from their bricks and mortar presence, which compliments their on-line business capabilities. This will likely mean rethinking what businesses do on - and off-line.

Robert Gold: You're right. Check out ebox.com[10]. A new offering from Canada. I was unable to figure out how to change the quantity of garbage bags that I bought online.

The other issue that retailers face is promotions. Most online businesses do not adequately promote specials and gift items. Study after study has proven that online shoppers want to be lead to the impulse and bargain feature items. Check out the Gap online (gap.com[11]) and see how they feature a special product, and offer significant bonuses for purchasing. Most proprietary systems work inelegantly. Also - build trust in your client's site by educating them to the following important items:

Navigation, fulfillment, seal of approval, technical expertise, brand. Now, if I can't figure it out, how about the little old lady down the street? Or my mother? And mothers are the true test.

How many of you have mothers that are online? Or older uncles and aunts that suddenly want to be on the net?

Session Moderator: Everyone wants to be on the net!

Robert Gold: Seniors are gravitating to the web in huge numbers - mainly due to email with their grandchildren.

JJ Anderson: What's your opinion of the "everything for free" mentality of the dotcom world? Doesn't that make it impossible for the rest of us to try to sell information over the web?

Robert Gold: JJ - it's a problem that will soon be alleviated. The free mentality will soon give way as the great flushing of internet dotcomdeads happens.

No revenue model = NOT open for business! The consolidation among the dotcoms is proof of that.

JJ Anderson: Amen to that!

Robert Gold: However, your own non-dotcoms can take advantage of Internet savings, as outlined above.

JJ Anderson: How do you go about migrating people to a paid for service when they have gotten used to it being free for so long?

Robert Gold: When quality is only available through a pay system, the option will be clear. However, there will always be free content sites - supported by ugly advertising. I expect there will always be a market for that. Just wait another 2 years - it's all about to change.

JJ Anderson What do you see in your crystal ball in 2 years?

Robert Gold: Wireless web, Asia coming on board - all the obvious things, plus today I read about a washing machine that uses its processor to read the washing instructions on the clothing labels. And refrigerators that order your groceries based on what goes in and out of the fridge. And Bill Gates showcased another Internet Tablet yesterday at Comdex.

Session Moderator: That's too frightening! I want to maintain some control over my life!

Robert Gold: Convergence seems to be the name of the game. How about wireless security? I'm concerned about that.

Jonathan Taylor: Do you think accountants are on the front or the back end of the curve?

Robert Gold: The accounting profession generally is behind the curve. We wait for our clients to move, then we follow. Weren't we the last to adopt computers? Don't you hate to update software? It's easier and less complicated to live the status quo, I'm afraid.

Jonathan Taylor: But they're looking to us to lead. And I would venture to guess most accountants have never purchased anything online!

Robert Gold: You are so right. At least most of us have email! How many of your firms have web sites?